bq. _Things Continue, `Till they Don’t …_

The end game for the Germans, and the rest of Europe, in terms of resolving the current Eurozone crisis is pretty straightforward. There are four ways to deal with a financial crisis: devalue, default, inflate, or deflate. For any country in the Eurozone who transferred private debt from the banking sector to their public balance sheets, and thus blew a hole in their debts and deficits, neither inflation nor devaluation were options. That leaves default, which pushes the costs onto bondholders, or deflation, through domestic wages and prices via the public balance sheet, which places the costs onto taxpayers. For a host of reasons, as guardians of the Eurozone, as an inflation-averse savings-culture, we would expect the Germans to prefer austerity to expediency, and force deflation, but there are real and obvious limits to any such strategy, which is what I have found puzzling since the crisis began just over a year ago.
[click to continue…]

Why is Germany in Europe’s catbird seat? Yes, it’s Europe’s largest economy, but not so long ago it was the “sick man of Europe,” earning only disdain or indifference from its European neighbors. What really matters is what didn’t happen: the German economy did not blow up in the global financial crisis like its erstwhile Anglo detractors – the UK and the US. Thanks to the Chinese stimulus plan, German exports quickly boomed again and without a huge domestic debt or banking crisis holding it back, Germany was the only one in a position to bail out the rest of Europe (to a point) and thus call the political shots. So, why did Germany come through the financial crisis of 2007-09 in relatively good shape? The answer lies in understanding why the German financial system (and economy generally) didn’t come to depend on a derivatives pyramid and debt-driven growth.

[click to continue…]

After nearly a half century, the “Germany through Europe” bargain, intended to help Germany overcome the political and cultural legacies of World War II, has unraveled. In just a few years, Germans have demanded a rebalancing of the European budget, strict rules governing monetary union, have pushed Eastern European member states into the hands of the International Monetary Fund, and balked at a quick bailout of Greek sovereign debt. In short, the European free ride on the German economy is over.

[click to continue…]

Over the next few days, Crooked Timber will be publishing a seminar, based on a workshop organized by Abe Newman and Mark Blyth at Georgetown University some weeks ago. The workshop was intended to get a bunch of political economy/political science people with an interest in Germany together, to figure out what was driving Germany’s economic policy. This is a topic which has received a lot of attention from e.g. US commentators such as “Paul Krugman”:, and for good reason. German preferences seem to be dominating European Union policy making (e.g. the continued effective veto on proposals for a genuinely European bond arrangement), and are arguably (through pressures for ‘austerity’) having a broader global impact too. Abe and Mark asked a variety of people to think about the causes and consequences of Germany’s policy stance – we’ll be publishing the results over the next few days.

Academic workshops like this are not uncommon. However, given the time horizons of academic publishing (which are better measured in years, if not geological epochs, than days or weeks), their findings are usually outdated by the time they see the light of day. Blogs (which get more attention usually than e.g. departmental websites) seem a nice way to get the results out in a more timely fashion. Thanks to the Mortara Center and Center for German and European Studies at Georgetown for hosting the original event. The participants in this seminar are as follows:

* Sheri Berman is Associate Professor of Political Science at Barnard College.
* Mark Blyth is Professor of International Political Economy at Brown University.
* Aaron Boesenecker is Assistant Professor at the School of International Service of American University.
* Richard Deeg is Professor and Department Chair of Political Science at Temple University.
* Henry Farrell is Associate Professor of Political Science and International Affairs at George Washington University.
* Wade Jacoby is Professor of Political Science at Brigham Young University.
* Matthias Matthjis is Assistant Professor at the School of International Service of American University
* Abraham Newman is Assistant Professor at the School of Foreign Service of Georgetown University.
* Tobias Schulze-Cleven is a Postdoctoral Researcher at the University of Bamberg.
* Mark Vail is Assistant Professor of Political Science at Tulane University.

The posts by Abe Newman, Richard Deeg and Mark Blyth will go up shortly. The others will follow over the next two days. On Thursday, I’ll also put up a PDF of the seminar, for those who prefer to read on paper or via iPad, Kindle or whatever.